Weekly resin report: Processors tap spot market for good deals

2018.10.17

The spot resin markets remained active, deal flow was nearly constant during the first part of the week and slowed a bit by Friday. While there was good interest in both Polyethylene and Polypropylene, completed volumes were heavily skewed in favor of PE. Buyers, faced with higher producer asking prices and the growing possibility of another increase finding implementation in Oct, tapped the spot market for relatively good deals. Though there are still mostly ample supplies of material to be had and some nice deals around, the lower end of the price range for available material has been cleaning up. Spot PP demand has waned a bit as prices have been fairly flat and sans a major outage, buyers have little reason to fear a monomer driven price increase. Still, overall PP supplies are categorically tight, only helped to balance by strong imports that fill much of the supply gap.

The major energy markets were mixed this past week with large declines seen in the Oil Complex. WTI Crude Oil had a rough week, pulling back sharply ($5.56/bbl) from its multi-year highs established just a week ago. The Nov futures contract settled down a clean $3/bbl to $71.34/bbl. Brent Oil also took it on the chin, the Dec contract lost $3.73/bbl to finish at $80.43/bbl; narrowing the premium to $9.09/bbl. Nat Gas futures had a strong start, surging as high as $3.368/mmBtu, but then gave nearly all of it back to end the week at $3.161/mmBtu, just a scant net gain of $.018/mmBtu. NGLs have also receded sharply, recording consecutive losses after making multi-year highs two weeks ago. Ethane prices were hammered, and though they recovered substantially on Friday to $.43/gal ($.181/lb), the week’s losses were still huge, around $.07/gal. Propane slid under a buck - dropping $.045/gal to $.995/gal ($.282/lb).

Monomer trading was quite lively this past week with good turnover seen for both Ethylene and Propylene. The Ethylene market was mostly pressured with a late week rebound, which pared the losses to only about a penny. Ethylene in TX ended the week around $.19/lb, while material in LA commanded about a $.015/lb premium. Propylene was again on the defensive as the market has maintained a slightly negative undertone and PGP for prompt delivery shed about a half-cent to $.565/lb. The PGP market saw very high volume on Tuesday, and while the backwardation increased a tad, spot saw no price change. In fact, PGP did not see any real type of price movement after Tuesday. Bids and offers were present, but neither strong enough to influence any sort of market movement late in the week. If PGP continues to leak lower over the next two weeks, the possibility of a minor October contract decrease, just a penny or two, would be justified.

The spot Polyethylene market continued its super busy pace as October moved to mid-month and our transacted volumes were well above average. Spot PE prices ranged from down a full penny for LD Injection to up a half-cent for LD and LL film grades, but the overall sentiment is slightly bullish. While the previous week was dominated by trader to trader activity, this past week saw more processors re-join the market to scoop up any remaining resin that was still being priced flat to slightly higher than late Sept values. Producers have nominated an October contract price increase ranging from $.02-.04/lb, though it’s still too early to make a call on the likelihood of timely implementation. We are still in the thick of hurricane season and fortunately the Houston grid has avoided a major weather situation / disruption, but it’s certainly worth keeping an eye on as both the Gulf and Atlantic shores have been hit with massive storms these past few weeks.

In September, Polyethylene export volumes pulled back for the first time in 7 months, but have still been surprisingly resilient in the face of the Chinese tariffs. Even at Sept’s lower export tally of 1.15 billion pounds, which was about 130M lbs below the all-time record just made in August, exports have ratcheted up to a new norm. This new level, which should continue to grow despite trade conflicts, has been planned and heavily relied upon to offset the increases in PE production. However, producers also showed their willingness to throttle back reactors to maintain a position of pricing power. Operating rates were reduced significantly in Sept, leading to a recently rare upstream resin inventory draw of nearly 142 million pounds. Even so, Houston area warehouses are still bulging with material and packaging delays have become commonplace.

Spot Polypropylene trading was somewhat lackluster; spot prices rose a penny while completed volumes slid below average. As we have seen in months past, early Prime railcar offers have been priced on the high side as resellers seek to maximize opportunities given their limited resin availability, better deals have appeared late in the second half of the month. The flow of packaged offgrade HoPP and CoPP in Houston has been fairly constant and well-priced, with good high flow material moving quickly. The impact of current production issues has also surfaced – PP production has dipped below domestic demand for the second month in a row, leading to another upstream inventory draw, now the lowest in a full year. There are also some processors that rely on certain producers with limited current availability, whom have instead successfully engaged the spot market for supply. Some processors seem to be less aggressive with their purchases as PGP monomer prices slowly tick lower, which relieves the fear of another upward spike in prices. Still, if production issues persist and the supply / demand dynamic tightens further, producers might soon seek another outright margin increase.